As regular readers will know, past performance is no guide to the future and few fund managers consistently outperform. One exception over the long term is star stockpicker and FE Alpha Manager Neil Woodford, who has a well-deserved reputation for consistently beating his peers.
However, every now and then a nimble newcomer comes along. The £900m Majedie UK Income fund is the only portfolio since Woodford launched his new open-ended fund - the £4.5bn CF Woodford Equity Income – back in June 2014 to return more cash to investors within the IA UK Equity Income sector.
Performance of funds, sector and index since June 1014
Source: FE Analytics
Over the longer term, FE Alpha Manager Chris Reid, who heads up Majedie UK Income, has also outperformed every fund in his sector since launch in December 2011, having returned 107.7 per cent while the sector average was 63.31 per cent and the FTSE Share gained 55.12 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
This is an impressive feat that the manager puts down to a strategy of largely avoiding the income stalwarts that stuff the likes of Woodford’s portfolio.
“We are not interested in these zombie ‘status quo’ style companies that are just trying to hang onto the business they have got, but instead we are looking for the ‘number two’ in the hope that the number one in the market gets into problems and they do really well. These are the type of stocks that have driven outperformance,” Reid (pictured) said.
“They are the kind of written off by the stock market but they have managed to turn their business around and become relevant to the modern world through strong management and lots of operational measures. But it’s not a recovery fund – it is an improvement fund.”
This style of stockpicking was a very important driver of outperformance but one of the main themes was betting big on financials and other stocks that can do well as the economy continues to recover, Reid adds.
“The real opportunities now are in financials and others that can benefit from global growth and greater employment,” he said.
“EasyJet is a good example. It was a bit of laughing stock four years ago, trading below book value. A new management team has come in and rescued the brand, sorted out the operational issues and suddenly lo and behold they are pretty close to becoming the European market leader.”
“Those are the stocks we go for: underdogs with a real fighting chance of getting to number one. The ideal company for us is about £2bn by market cap and has a solid base. A company like Playtech, for example, could easily double in size in the next few years and you can’t find that in the FTSE 100.”
The manager believes some of the most popular stocks held in income funds are overpriced and sees better opportunities present in the small and mid-cap parts of the market. However, Reid says it is not a mid-cap fund.
“I think these stocks like Whitbread, for example, look very expensive to us. In the last six to nine months I have moved further down the market cap spectrum that has been a slight change in tack. However, we do have some biggies – we have held BAE Systems for a long time, also Aviva which is our largest position.”
He is also bullish on the prospects for one of the most battered parts of the FTSE 100, taking top 10 positions in the two mining giants Rio Tinto and BHP Billiton.
“What you have seen in the likes of Rio Tinto and BHP Billiton is that you cannot just go flat out all the time and be cash generative,” he said. However Reid adds that due to their recent change in management in he is buying more and more into the two companies.
A long-term backer of Reid is F&C co-head of multi-manager Gary Potter, who believes the fund is still a boutique offering that not many people have heard about despite its credentials.
“Majedie have an outstanding UK equities team and they run a whole range of good-performing products and they have a consistent delivery,” Potter told FE Trustnet recently.
Another fan is Marcus Brookes, who heads the Schroder multi-manager range. He scooped up a position in the fund at the beginning of year after it passed its third birthday, although he had been watching it since its launch.
“Chris Reid’s style is based on high conviction, active stockpicking, underpinned by in-depth and detailed analysis. Most recently the fund has benefited from having limited exposure to the struggling energy sector,” Brookes said.
The fund is now a top 10 position in both the Schroder MM UK Growth and Schroder UK Equity Income funds as well as the entire F&C MM Diversity range.
Majedie UK Income has an ongoing charges figure of 0.78 per cent and a yield of 3.66 per cent.